COMMON SERVICE

[SURYAKANT MITHBAVKAR]

Under Excise Law We have manufacturing unit at Vasai registered with Excise and SERVICE tax. We have rented one more unit at Mumbai wherein we have started manufacturing activities under same name and taken excise and service registration as branch of Vasai unit. We have declared as Admin And registered office of the whole factory i.e. Vasai and Mumbai in the rented place.

In rented place the owner of the property is also registered under SERVICE tax act and he was issued SERVICE tax invoice for rent received. Since we have manufacturing activity at the rented place we have availed service tax credit against rent .

Now excise department conducted Audit EA 2000 for our rented place and observed that rent is common service since we have operating admin and registered office for Vasai unit and We have to reverse the credit availed against rent.

We have explain them that we have occupied 90% place for our manufacturing activities and 10% for office for the both places i.e. Vasai and Mumbai. They are not satisfied.

Please comment expert advise for the same issue

[KASTURI SETHI]

Have you any documentary evidence in support of the ratio of usage of 90 % and 10 % i.e. separate maintenance of records ? If you do not have, it will invite litigation.

[Rajagopalan Ranganathan]

Sir,

Renting a building is taxable service whether the building is used for Administrative use or for manufacturing dutiable goods. Therefore using a portion of the rented building for locating administrative or registered office will not affect the right to avail the credit.

If the entire building is used for administrative or registered office and no taxable service is provided from there then the department's contention is right. However, in your case you are using the building predominantly for manufacturing dutiable goods and hence using a portion of the building for locating administrative pr registered office will not affect the availment of credit.

However, as Shri. Kasturi Sir opined if the amount involved is substantial you can litigate the issue. Otherwise you reverse the proportionate credit which can bre quantified by a cost accountant or your auditor.

[KASTURI SETHI]

I agree with the reply of Sh.Ranganathan Sir. If you reverse cenvat credit proportionate to exempted service (duly certified by an CA or CMA), it will have legal backing based up the judgements of CESTAT.

[KASTURI SETHI]

In continuation of my reply, the department will invoke Rule 6 (3) of Cenvat Credit Rules and justice is possible only at CESTAT stage.

AI Summary

Cenvat credit on rented premises upheld where premises predominantly used for manufacturing; reverse proportionate credit if no evidence. Cenvat credit on rent is allowable where the leased premises are predominantly used for manufacturing, but entitlement hinges on documentary proof of the usage ratio; lacking such evidence, the taxpayer should reverse proportionate credit attributable to exempt administrative use, with apportionment certified by a chartered accountant or cost accountant to obtain legal backing.